SEC Strategy Targets Minor Offenders, Too

Admitting that the Securities and Exchange Commission (SEC) has resources “not nearly sufficient to the enormity and scope of the responsibility” it faces, SEC Chairman Mary Jo White outlined new “force multipliers” with which her organization is pursuing major and minor lawbreakers alike.

“One of our goals is to see that the SEC’s enforcement
program is—and is perceived to be—everywhere, pursuing all types of violations
of our federal securities laws, big and small,” White said in a speech at the Securities
Enforcement Forum in Washington.

“Investors in our markets want to know that there is a
strong cop on the beat—not just someone sitting in the station house waiting
for a call but patrolling the streets and checking on things,” White said.

That philosophy will translate to a policing approach targeting
not just major securities fraudsters but those committing more minor violations,
as well. White likened the approach to that adopted by former New York City
Mayor Rudy Giuliani, whom she worked with while serving as the U.S. Attorney for the Southern
District of New York.

“They essentially declared that no infraction was too small
to be uncovered and punished,” she said. “They wanted to avoid an environment
of disorder that would encourage more serious crimes to flourish.”

Taking an approach that focuses only on major offenses is not
an option, White continued. This is because, if minor violations are constantly
overlooked or ignored, they will go on to feed the bigger violations and, more
importantly, start to foster a culture where laws are “increasingly treated as
toothless guidelines.”

“Retail investors, in particular, need to be protected from
unscrupulous advisers and brokers, whatever their size and the size of the
violations that victimize the investor,” White said.

The bottom-up strategy translates to four concrete changes
for SEC operations, she said.

First, the SEC is expanding its field of vision by
leveraging the strength of its exam program, incentivizing individuals to step
forward, collaborating with regulatory colleagues, and harnessing the power of
new technological capabilities.

Second, the SEC will focus on deficient gatekeepers and pursue
“those who should be serving as the neighborhood watch but who fail to do
their jobs.”

Third, the SEC will continue to look for “broken windows” in the
markets—a term White used to describe violations that frequently go unpunished
and contribute to a perception of poor regulatory oversight—to avoid breeding an environment
of indifference to SEC rules.

Finally, White said that the SEC will continue to prioritize the
biggest cases—pursuing and punishing major offenses by significant and
high-profile market participants “to send a strong message of deterrence to the
industry” and boost the confidence of investors.